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Void Contract
mainly discussed in Chapter 9 (Articles 1409-1422) of Title III, Book IV of the Civil Code of the Philippines. A void contract is an agreement with no legal validity at all because of certain defects. It is considered void and inexistent from the very beginning and cannot be ratified by law. This defective contract is literally a 'void agreement' since a 'contract' requires the force of law. Kinds of Void Contract A void contract can be classified as: * Illegal, if its cause, object or purpose is contrary to law, morals, good customs, public order or public policy. * Inexistent, if it lacks at least one of the essential elements (consent, object, and cause) at the time of the transaction. * Unrealistic, if it is absolutely simulated or fictitious. * Impossible, if it contemplates a service that is no longer possible. * Beyond commerce, if its object is outside the commerce of men. * Uninterpretable, if the intention of the parties relative to the principal object of the contract cannot be ascertained. * Prohibited, if it is expressly forbidden and declared void by law but not illegal per se (in itself). Effects of Void Contract A void contract generally has no legally binding effect, as: *it does not create, modify, extinguish a juridical relation; no rights are granted and no obligations are made. *it cannot be enforced and ratified by the court. *it cannot be novated to create a valid contract. However, a void contract may have some effect if the party are not in pari delicto (equal fault). Declaration of Void Contract The action or defense for the judicial declaration of illegality, inexistence, or absolute nullity of a contract is: * imprescribtible - does not expire in the passage of time, since the defect in the contract is permanent and incurable. * optional - does not require a party to bring the action to the court. A party has the right to unilaterally declare a contract void, although judicial declaration is advisable to ensure convenience and legal process. The action may be raised by a third person whose interest is directly affected by the contract. Void Contract due to Criminal Offense The nullity of a void contract can proceed from an illegal cause or object that constitutes a criminal offense. If both parties in pari delicto (equal fault), the rules are as follows: *both parties shall have no action against each other; neither of them can seek relief from the court. *both parties shall be prosecuted; each must bear the consequences of his acts. *the things or the price of the contract, used and produced in the crime, shall be confiscated by the government. If only one party is guilty or both parties are not equally guilty, the rules are as follows: *the guilty party or the more guilty party shall have no action against the other and shall be prosecuted. *the innocent party or the more innocent party may claim what he has given and shall not be bound to comply his promise. Void Contract due to Non-Criminal Offense The nullity of a void contract can proceed from an unlawful or forbidden cause that does not constitute a criminal offense. If both parties in pari delicto (equal fault), the rules are as follows: *neither party may recover what has been given by reason of the contract. *neither party may demand the performance of the other's undertaking. *neither party can ask the court to settle disputes and grant reliefs as regards to the void contract. If only one party is guilty or both parties are not equally guilty, the rules are as follows: *the guilty party cannot recover what he has given by reason of the contract. *the guilty party cannot ask for the fulfillment of the other's undertaking. *the innocent party may demand the return of what he has given. *the innocent party cannot be compelled to comply with his promise. Recovery in Void Contract In a void contract, a recovery is allowed: *if the contract imposes a usurious interest rate. *if the contract is repudiated before execution; an exception to the rules in case of pari delicto (equal fault). *if the contract is prohibited but not illegal per se (in itself); an exception to the rules in case of pari delicto (equal fault). *if the contract is entered by an incapacitated person. *if the contract fixes a price that exceeds the maximum price set by the law. *if the contract fixes a service time beyond the maximum working hours set by the law. *if the contract fixes a wage below the minimum wage set by the law. ---- Usurious Interest Recovery is allowed in case of a contract that imposes a usurious interest rate which exceeds the maximum allowed under the Usury Law. The paying party can recover the whole amount of interest paid (not only usurious interest) plus its interest from the time of payment. A usurious interest may be void, while the principal loan is still valid. This is because the 'accessory (the interest) does not carry the principal (the loan). ---- Repudiation before Execution Recovery is allowed in case of an illegal contract repudiated by one of the parties before it has been executed in which no illegal purpose has been accomplished or no damage has been caused to a third person. The repudiating party can recover the money or property delivered for illegal purpose when allowed by the court for the reason that such recovery would subserve (aid) public interest. This recovery aims to prevent illegal acts and violation of the law. ---- Prohibited but Not Illegal Recovery is allowed in case of a contract that is not illegal per se (in itself) but is merely prohibited by the law to protect the person who becomes the plaintiff. The complaining party can recover what he has paid or delivered if public policy would be enhanced as a result. ---- Incapacity of One Party ''' Recovery is allowed in case of an illegal contract entered into by a person who is incapable of giving it consent. The incapacitated party can recover the money or property he delivered if the interest of justice so demands. This recovery is applicable whether the illegal contract has been executed or not. ---- '''Excess of Ceiling Price Recovery is allowed in case of a contract that violates the 'ceiling law' which sets the ceiling or maximum price of any article or commodity. The paying party can recover the amount paid in excess of the maximum price. ---- Service beyond Time Limit Recovery is allowed in case of a contract that violates the maximum working hours (eight hours a day) set in the Labor Code. The laborer/employee party can recover the additional compensation for service rendered beyond the time limit. ---- 'Wage below Minimum ' Recovery is allowed in a contract that violates the minimum wage set by the law. The laborer/employee party can recover the deficiency with legal interest and the employer shall be criminal liable. Category:Obligations and Contracts Category:Defective Contracts